Question
On January 1, 2025, Splish Brothers Co. leased a building to Sunland Inc. The relevant information related to the lease is as follows. 1. The
On January 1, 2025, Splish Brothers Co. leased a building to Sunland Inc. The relevant information related to the lease is as follows.
1. The lease arrangement is for 10 years. The building is expected to have a residual value at the end of the lease of $3,900,000 (unguaranteed).
2. The leased building has a cost of $4,400,000 and was purchased for cash on January 1, 2025.
3. The building is depreciated on a straight-line basis. Its estimated economic life is 50 years with no salvage value.
4. Lease payments are $295,000 per year and are made at the beginning of the year.
5. Sunland has an incremental borrowing rate of 8%, and the rate implicit in the lease is unknown to Sunland.
6. Both the lessor and the lessee are on a calendar-year basis.
QUESTION:
Prepare the journal entries that Sunland should make in 2025. (List all debit entries before credit entries. Credit account titles are automatically indented when amount is entered. Do not indent manually. Round answers to 0 decimal places, e.g. 5,275. Record journal entries in the order presented in the problem. If no entry is required, select "No Entry" for the account titles and enter O for the amounts.)
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